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Abstract

This chapter addresses the strategic importance of expatriate managers in the process of knowledge acquisition, and consequently the enrichment of the human capital of the firm. It proceeds by proposing guidelines for selection, training, compensating, and retaining foreign expatriate managers to avoid interruptions of assignments, that can be very expensive, or attrition, that causes a loss of accumulated knowledge to the firm.

Introduction

The Reasons for Expatriate Presence in Subsidiaries

Edstrom and Galbraith (1977) theorized that expatriate managers are present in subsidiaries for three reasons: (a) position-filling (i.e., when the head office needs to bring knowledge to the subsidiaries), (b) management training, and (c) control (p.249). Harzing’s research (1999) validated their theories. Cerdin and Brewster (2014) maintain that this theory still holds. Bonache and Brewster (2001) specifically researched knowledge transfer into the subsidiary by expatriate managers. Johanson and Vahlne (1977) and Downes, Thomas, and McLarney (2000) established that knowledge acquired in subsidiaries also moves to home offices. Harzing (2001) raised the question of knowledge transfer from subsidiaries to home offices and between subsidiaries. Hocking, Brown, and Harzing (2004) extended the research of Edstrom and Galbraith to include a knowledge transfer perspective: “Cumulative learning by expatriates and its subsequent re-investment represents an underestimated individual-level resource with the potential to exceed knowledge applications in adding long-term strategic value to multinational firms” (p. 583). This chapter will start with an explanation for the reason for expatriate managers’ presence in subsidiaries. It will continue with a set of propositions as to the management of expatriate managers abroad, proceed with a recommendation on the necessary presence of an International Human Resource (IHR) department in multinational corporations, and finally elaborate on the benefits of the presence of expatriate managers for the human capital of the firm.